Progressive Planet Solutions Inc. (PLAN) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Progressive Planet's Fiscal Q1 2027 Earnings Call for the period ended July 31, 2026. The financial statements and MDA have been filed and can be accessed through the SEDAR website. Today is October the sixth CEO, Stephen Harpur, will present the company's financial results and provide a business update. This will be followed by a Q&A session. Investors are encouraged to submit their questions via the Q&A box, and we will address them at the end of the session. Please make your questions clear and succinct. And I will remind everyone that certain statements made today may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors. For a complete description of these risks and uncertainties facing the company, please refer to the MD&A and other continuous disclosure filings, which are also available on the SEDAR website. Steve, I'll pass it over to you now.

Hello, Martin, thanks for having me.

All right.

So welcome, everybody. Thank you for taking your precious time to listen to me for the next 45 minutes or so. I appreciate your time. I know it's valuable. So we're going to talk today about the first quarter results of fiscal 2027. The first quarter ended on July 31. And I am having a little glitch here. Here we go are forward-looking statements. I'm not going to read this, but I will be talking about future events. And so please note, same. So I want to talk first about the financial position of the company. We are currently experiencing strong momentum. We had record annual revenues for the fiscal year that ended April 30, and we continue with that momentum. So our Q4 was our highest quarter ever until we exceeded that and significantly exceeded that with a record Q1. So we currently have more than $5.6 million available in unused credit facilities, over $2.5 million in cash as of July 31. I talked a lot in the last -- just a few weeks ago, Martin, when we talked no further onetime slotting fees budgeted also no further major Canadian capital projects currently anticipated for this current fiscal year and 4 major capital projects to be wrapped up by April 30, 2027. So capital projects underway right now, 4 major capital projects under way. They'll all be finished 2 months before the end of our current fiscal year. So the PozGlass Phase 2, the major CapEx will be completed by December 31. We just received yesterday our bagging line for the CanBlast abrasives that are made on the front end of that system, our lightweight cat litter installation that will occur before the end of the calendar year. Our automated valve pack line expected completion by February 28, and there's $1 million of grant money from Fortis that we will receive once we complete that and then our -- sorry, pardon me, that is the fine grinding line. There's $1 million of Fortis money for it and the automated valve pack line, again completed by February 28, 2027. Critical infrastructure. We have now Absorbent spent minimally in infrastructure and equipment in the decade before acquisition. The company was for sale for many years before we actually completed the acquisition. The acquisition got delayed by about 2 years based on COVID. And so Absorbent needed a lot of money to invest in upgrading throughput and -- so we've significantly increased the capacity since the acquisition, and these investments are now in place. Current capital program is committed and on track for completion in this fiscal year. And any future capital allocation shifts will show growth and return-driven opportunities. And we'll talk later in the presentation about a focus on the U.S. marketplace. So commissioning underway now in the PozGlass pilot plant, our CanBlast abrasive line. We've been selling that for about 20 years, our brand but co-packed by another company. just received the bagging equipment yesterday. We'll have that up and running and be bagging 50-pound bags of sand blasting abrasive media, so we'll be making our own by the end of October, and we will be commencing the production of PozGlass powder, so the wet grinding in November. And we are now working with Amrize formerly LafargeHolcim for real-life projects with PozGlass April, May 2027 in the lower mainland of B.C. So I want to talk about our research and development in our core business costs. We -- you saw elevated spending in last fiscal year and again in the first quarter on the PozGlass pilot. And I also want to talk about core inflation and how we've addressed it after Q1. So we received grant funding, which reimburses 49.86% of the PozGlass pilot plant costs. We report that as grant income separately from our core business. Under IFRS rules, which apply to us as a public company, development costs for our pilot plant can only be capitalized once the number of specific criteria are met, and these are quite stringent. And so many of our costs that normally could be capitalized are expensed with this pilot plant. And PozGlass pilot plant costs will scale back at the end of 2026 calendar year. So by December 31, 2026, as we move to operating the plant. And I also want to talk about core business inflation. So we saw a significant increase specifically over $400,000 increase in our freight. Now part of that increase was an increase in the amount of goods shipped but there was a larger increase in the amount of freight than the growth of the company. But -- so we continue to see some margin compression in the short term. But we did implement a price increase in the current quarter. Some of our customers take up to 90 days to accept the price increase, but we implemented a price increase in August and September notification was given to our customers. So we will focus now with the automation and the projects that you've seen that I've just discussed. We're also putting a major focus on increasing our revenue per employee with these CapEx investments. So once you install an automated valve packer, you're not going to have the manual labor of manually filling the bags of Red Lake Earth, Geothermal grout, et cetera. So Q1, you see the 2 gold bars here because we celebrated best ever quarter ever in with $6.51 million. And then we had $7.29 million and change, rounded up to $7.3 million for Q1 of fiscal 2027. Now there is some seasonality in our business, if you look to Q2 for the last 2 years, you can see those numbers, and you can see that there is some seasonality, but we are very excited about the continued growth of the company I just don't want everybody to expect that every single quarter will exceed the prior quarter because we do have some seasonality in Q2 as we wind down, we have very, very prolific sales of Red Lake Earth. And one of the main things that's used for is killing fire ads. And the fire ad season starts to wind down in Q2. So we do see some decline in sales of Red Lake Earth, and that's hurt. And then of course, in Q3, we start to see our cat litter ramp up again. So Q2 is typically a weak quarter for us. So I just bring that up to create realistic expectations that we will not constantly exceed every quarter with the from the quarter directly behind it. We do have some seasonality, but we are seeing very strong momentum in all segments of our business. So again, highest annual revenue was 2026. Anybody that takes Q1 and times it by 4, would immediately see that we're trending to do better than that. But again, I caution that there is some seasonality, but also that we are seeing an uptick in all levels of our business in all sectors. I want to talk about the elephant in the room, I often get teased. It's one of my favorite sayings, the elephant in the room. So what is the elephant in the room for us? Well, it's inflation and increased costs. So if you look at the image to the left, you'll see the 3 SKUs that we have -- we've done roughly $2 million in sales of those 3 SKUs since November 1. They've been phenomenal for us. We sell them in 2,434 tractor supplies. The 20-pound bags are made. They're co-packed for us by a family business in Eastern Oregon. And then we bring back both bags of that, and we make these 2 products. You see the image and I'm also holding them up. Those are made. Those are made in Canada. And so unfortunately, 2 of those 3 SKUs that are part of our booming new brand, Pure DE, they do cross the U.S. border twice, once when they come up to us. And secondly, when we bring them back for sale into the U.S. Our diesel costs, their soaring, freight costs rose from [ 8 19 ] for the prior year, Q1 to $1.233 million. And I think most people recognize that globalism is in decline. There is strong incentives in the U.S. to make products in the U.S. that are sold in the U.S. So how are we going to address. So addressing the elephant long-term solutions. Over 66% of our Q1 revenue came from the U.S.A. Freight cost decline in products sold in the U.S.A. are made in the U.S.A. So we are searching for opportunities to process more product in the U.S.A., specifically in the Pacific Northwest, and we are seeking to avoid 2 border crossings with our new product lines Red Lake Earth, Stall DRY, these products activated Barn fresh, they will always be made with our Canadian they are well-established brands that have a different color of diatomaceous earth. Pure DE is a near white, and the Red Lake Earth, it's not quite red, but it's sort of salmon colored material of people know its color. It's very much part of its identity. So we are also receiving strong inbound inquiries to partner to onshore other industrial mineral-based products with very, very large third-party companies. We're getting inbound interest from Europe and Asia. So the European Union and Japan, both signed new tariff agreements, which have fundamentally changed the profitability of legacy production of industrial mineral products in both Europe and Asia. And so our phone is ringing from people wanting to discuss toll processing or partnering on onshoring. So as we look to move more production into the U.S. As you know, we've got very, very strong brand now with the Pure DE being sold in tractor. We are looking to establish bricks-and-mortar south of the border, not only to manage our own business but also to enter into the business of toll processing. So ultimately, we're looking to build a multipurpose processing facility in the Pacific Northwest, similar to what we do in Canada. Share structure. We have just under 111 million shares, just under 6 million options, just under 117 million shares fully diluted. I want to talk about awards. These are third parties recognizing us. And the awards -- a lot of the value of the award is gaining credibility with larger companies expressing an interest in doing business with us. I think the one that's most near and dear to my heart is the carbon capture Canada. We won in September of last year. We beat multiple global players, PETRONAS, one of the biggest oil companies in the world based in Malaysia was a finalist for the carbon capture utilization and storage technology Award of the Year. BASF, the biggest chemical manufacturer in Europe with a finalist, we meet them. So these awards that we continue to be nominated as finalists and stay tuned as award season is up and coming for the fall of this year. Investment highlights. We're profitable, vertically integrated clean tech manufacturer focused on eco-friendly silica-based products. We have robust cash flow, funding our innovation pipeline, very clean cap table, patent pending solution is poised to disrupt the cement industry getting ready to start deploying PozGlass. The investments in upgrading Canadian operations are nearing completion, and we're now moving our long-term focus on growing business in the U.S.A. with more production in the U.S.A. And so that's it, Martin, and I'll hand it over to you for any questions.

Thanks, Steve. As a reminder, anyone with questions, please type them into the Q&A box in Zoom, and we will read them out. Firstly, would plan help the co-packer buy new equipment so that you wouldn't bring the raw material to camlips?

We currently have a wonderful relationship with a co-packer, but they have a very small building site. This is -- this is the material that we procure from a third party in Eastern Oregon that production facility is simply too small to grow significantly to enable us to do more at that specific production facility. Would we welcome increased involvement with this wonderful family business? Absolutely. But it still needs investment outside of the geographic location of the current production facility.

All right. You are not providing official revenue guidance. But can you give a sense of what level of growth, should we expect growth year-over-year on a quarterly basis while quarterly revenue may be seasonal? Should we generally expect growth from the prior year?

Yes. I believe that we should expect growth quarter-over-quarter for the next 3 quarters of the current fiscal year. If the current trajectory remains consistent. We introduced a new product line in the -- we only started doing sales in November of the Pure DE. We're seeing growth in our geothermal growth. And we are seeing general increase across all of our business segments.

You said you're expecting quarter-over-quarter growth for the next 3 quarters. Do you mean like Q2 remains within Q1?

I mean Q2 versus the prior year Q2. Q3 versus prior year Q3. I believe we will see, of course, the only thing that is constant is that there's no constant right now in North America. So there are things that can -- if we are all of a sudden tariffed, currently, we are not. So I can only comment that in general, we are seeing an uptick across our business lines. And I expect to continue to see that uptick.

All right. Your margin compression, is that all due to rising costs? Or are you facing pricing pressures as well?

Rising costs. We are not -- customers are not asking us to provide cheaper prices. On the contrary, we're able to get through most of the price increase that we have. We only do price increases once a year. We just did the bulk of them coming in September. But the margin pressure is very much on inflation, and it's not just diesel, plastic bags cost more paper products cost more. Now the other thing we are doing to mitigate that is looking to grow our revenue per employee with the investment in automation. So in particular, the automated valve pack is one. And we continue to continuous improvement is part of our DNA. You saw the margin grow in this company over the last 3 years. So we will continue to focus on continuous improvement, but one of the biggest things for us is a real focus on revenue per employee and the investments that we have made enable us to grow our revenue per employment per employee with automation. And we just implemented in the last year, the new rollout that can feed 2 lines at once, but we haven't seen the benefit because we're still -- the second line for us, our valve pack line is still manually fed. So at the point that the automated valve packer works, our robot can work at full capacity stacking 2 lines at once, with the bottleneck being currently the manual filling of the valve bags in that second line.

All right. Your -- the CanBlast line is expected operational by the end of October, lightweight cat litter by the end of December and then the valve pack in February, March, I guess, of next year. Will those have impact immediately on efficiencies? I presume how long will they impact the revenue or the revenue potential? And how long will that sort of growth potential take to show on the financials?

So there's 2 things you need to grow. First of all, you need to have the new sales. And secondly, you have to be able to produce the product and not grow your backlog. If you grow your sales, but you just grow your backlog as you grow your sales and don't increase your production, then you don't increase your revenue. So we changed 2 years ago, the compensation structure of our sales team, and that has now worked out very well. They're when you introduce a new product, it's typically 9 to 12 months before that goes into a company sometimes 6 months, but it's certainly not instant. But the other thing is that the fourth capital project, the air sweat mill, the fine grinding, that will increase our throughput by a factor of 10. So currently, we produce a bunch of chip product, so small, little chip of DE or of bentonite clay and then we have byproduct powder. That byproduct powder has to be ground smaller to have finished powder products. And we have, for the last 30 years, not been able to make fine powder as fast as we generate course powder. So then we're subjected to going through a secondary step where we went that powder, extruded under pressure, press it back into rocks, goes back to the dryer, crush and screened again. And that's a significant cost for us with the introduction of the new air sweat mill or the fine grinding line. And this is the one where we've got $1 million coming back from FortisBC when it's complete and its target date is February 28. We will now be able to produce fine powder products as fast as we generate the coarse powder so we can keep up because we've the throughput of that mill by a factor of 10. So all things -- all of the powders are produced on the valve pack line, and the valve pack line currently is manually someone literally picks up a bag and puts it on a spot when it fills to take it back and then they put it on to a line where it goes over to the robot. So there are 2 things holding up this -- all of the products going through the Valve Pack. First of all, we could make fine powder fast enough. That has now changed with as of February 28, when we finish the fine grinding line. And secondly, we will be able to bag it significantly faster because it's no longer manually a human putting a 40-pound bag putting an empty bag and then taking a 40-pound off and then placing it in line to go to the robot. That's all done automatically. So the answer to your question is a qualified yes. We still have to go out and get more sales, but we have the ability to produce as you're aware, our business is on an uptick, we are growing. So qualified, yes.

Okay. So your salespeople are incentivized to generate the new sales to coincide with the ramp-up of production?

Correct.

And -- okay. With the potential U.S. expansion, could this be achieved through an acquisition? Or would this likely be done through a brownfield or greenfield investment?

All of the above. We're evaluating multiple opportunities that would -- we are considering all opportunities. And obviously, I've been talking about this for maybe 9 months now. So this is not a new topic stay tuned as we progress with this initiative to produce more in the States, but all of the above are options for us.

Margin hit in Q2 amounted to about 400 basis points due to all the factors you've discussed, do you see it stabilizing at this level? Could it improve? Or could we see some additional weakness?

What I don't know is what the price of diesel is going to be. We see anecdotal evidence that crude oil is moving through the Strait of Hormuz at even higher than prewar levels. But diesel production has seen -- we've seen destruction of processing capacity in Russia as well as in the Middle East and U.S. and European and Asian diesel production is running at greater than 100% of nameplate. You cannot do that forever without damaging your facilities. We run industrial processing. We know a little bit about running excess capacity. I cannot predict the price of diesel. So I do see continued inflation right now because it's not just the production of diesel. It's also the production of plastic, which is again a petroleum product and the price of plastic increasing. I do envision that we will have continued inflation for the next 6 to 12 months, even if everything ends tomorrow, there's a whole bunch of capacity that needs to be rebuilt. So I do see increased inflation for manufacturers as a whole. We have put through price increases, and we are investing and are nearly complete in the automation efforts. But I do not see margins rising significantly. With respect to what the other side is, it's a little bit of a crystal ball. I will say that the majority of our costs are our own products and we own our own minerals. So we don't see inflation on the raw materials that represent the bulk of our products, which we own, which are DE, our bentonite clay, our Zeolite quarries, we own those. For people that buy those commodities from others, they are subject to more risk than us. So we do have some protection, but the price of chemicals. We buy 2 chemicals. We buy food-grade citric acid, and we buy soda ash as well as the price of plastic and paper packaging and the price of freight, I don't see any relief in those in the very near term.